Discussion Paper Details

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Title: Payment Evasion

Author(s): Stefan Buehler, Daniel Halbheer and Michael Lechner

Publication Date: May 2015

Keyword(s): Deterrence, Fine, Price Discrimination and Pricing

Programme Area(s): Industrial Organization and Labour Economics

Abstract: This paper models payment evasion as a source of profit by letting the firm choose the purchase price and the fine imposed on detected payment evaders. For a given price and fine, the consumers purchase, evade payment, or choose the outside option. We show that payment evasion leads to a form of second-degree price discrimination in which the purchase price exceeds the expected fine faced by payment evaders. We also show that higher fines do not necessarily reduce payment evasion. Using data on fare dodging on public transportation, we quantify expected fines and payment evasion.

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Bibliographic Reference

Buehler, S, Halbheer, D and Lechner, M. 2015. 'Payment Evasion'. London, Centre for Economic Policy Research.